SAPPHIRENow 2017 – indirect access, a topic that refuses to die

SUMMARY:

Almost every conversation with SAP, its customers and partners had some tinge of indirect access. To its credit, SAP was up front about where it is at. User groups smell opportunity but each has a different approach. Customers are the ones who are left head scratching. We separate the noise from the signal on this discussion.

Indirect access is one topic above all others that raises blood pressure among buyers, consultants, user groups and the vendor – in this case SAP. Let’s be clear, the topic is not new and it is not exclusive to SAP.

In SAP’s case, indirect access as a contractual construct has been around for at least 15 years. The difference in 2017 is that it has emerged from the shadows in a very public way, principally following the outcome SAP’s win in the SAP v Diageo case, but amplified via the accounting provisions InBev made related to SAP licensing issues.

We should add from the get go that the Diageo case is not finalized and may yet turn in Diageo’s favor. Also, the InBev case, while conflated with the Diageo one, has plenty of dis-similarities such as to make the two cases only tangentially comparable. Therein lies a central problem. No two cases are the same yet mention indirect access and everything gets thrown into the mix. It’s unhelpful when that happens.

At SAPPHIRENow 2017 (and beforehand), Howlett had a number of useful conversations with SAP executives and customers on the topic alongside meeting with senior executives from DSAG and SUGEN. UKISUG sent over a press release on the topic and SAP endeavored to start making the topic more transparent both in Bill McDermott’s opening keynote and in a press release. Reed also had conversations, including meeting with Geoff Scott, CEO ASUG and the SUGEN leadership. Both of those meetings were played back on video shoots. (See below.)

What we know

  • SAP leadership is on the record as saying that it wants to get this topic off the table and, to that extent, is still taking in ideas of actions that can usefully move the ball forward.
  • Very large SAP customers do not have this problem because they have either licensed accordingly (with an army of lawyers in tow) or have an ‘all you can eat’ license arrangement for which they make a significant annual payment.
  • McDermott has said publicly that there will be no attempt by SAP to go after back maintenance and licensing in cases where customers are found to be out of compliance. There will however be an expectation that customers who are out of compliance will get their house in order.
  • While each of the user group leaders talk in neutral terms, there’s a lot of blocking and tackling going on at the individual case level.
  • Each geography is impacted differently depending upon the prevailing laws applicable to the software being licensed.
  • The manner in which indirect access was defined in some cases has lead to uncertainty in the minds of buyers and it is hard to know how those cases will be settled to everyone’s satisfaction.
  • Cloud based solutions do not exhibit the same problems but watch out for IoT ‘gotchas.’

Here is what Hala Zeine said in the press release:

  • We believe value is measured by outcomes. Therefore, our pricing model for the Procure-to-Pay and Order-to-Cash scenarios in ERP (ECC or SAP S/4HANA) will now be based on orders, a measurable business outcome for any business.
  • Indirect static read access reinforces that a customer’s data is yours. Just because the data was in the SAP system, does not mean you should pay to view it when it is outside the SAP system. Indirect static read is read-only that is not related to a real-time system inquiry or request and requires no processing or computing in SAP system. Indirect Static Read will now be included in the underlying software license – i.e. free of additional charge when a customer is otherwise properly licensed. SAP leads the pack in addressing customer expectations related to this scenario.

Impressions from conversations

The SAP side

Howlett bumped into Ms Zeine and had a constructive if mildly combative 15 minute discussion on the topic. He got the clear sense that SAP is endeavoring to get value for itself where it believes value arises beyond the straight recording of data in multiple systems. That is why it is taking the business process approach. However, it is faced with decades of agreements which result in a number of ‘customers of one.’ It may never be possible to reach a satisfactory arrangement with these outliers. The only question is – how many are there? No-one is certain. Nevertheless, we came away from that conversation with the distinct impression that Ms Zeine is acting in good faith. That’s important. Here is what she said in the press release:

Customers that want to win in a modern, digital world need a partner that is willing to reimagine their own processes to drive success in a digital economy. What I can assure every customer is that at SAP — with the unwavering support of CEO Bill McDermott and every SAP employee — is that your voice matters. When customers speak, SAP listens. In my view, that’s the hallmark of a world-class, customer-focused business.

In our meeting with McDermott, there was a passage of interplay between Reed, Howlett, John Appleby and Harald Reiter that gave McDermott an insight into the way we can argue this topic among ourselves, sometimes with a degree of ferocity. Both Reiter and Appleby say that customers must bear a significant degree of responsibility for their licensing position. No argument there, except that licensing SAP has always been difficult with contracts running many pages and with interlinking terms that sometimes defy logic. Large enterprises may not have much of an issue but enough of the smaller companies do for this to be a real and live issue. As Howlett has implied, there are no shortage of customers seeking help.

One idea put to McDermott may help going forward. Right now, it is hard for customers to discover exactly how their contracts dovetail to what is being used. SAP should be tasked to reconcile those issues in software so that it is easy for both parties to know and understand what’s going on.

Once again, we came away from the conversation believing that SAP wants to act quickly and fairly. The key will be for McDermott to lay down the law to the more ambitious sales executives, explaining to them that making customers fearful is a sure fire way to drive them into the arms of other vendors. By implication – that hurts commission earning power.

One question not yet answered by SAP’s indirect access policy updates: the customer that wants to export/manipulate data and write it back into SAP systems. It would be difficult for SAP to argue they are adding enough value in those circumstances to charge.

The user groups

Most SAP users are represented by geo-specific user groups or through SUGEN, which represents 21 or 22 of the biggest SAP user groups, with the notable exception of DSAG. DSAG is the most vocal when it comes to contentious topics.

The DSAG leadership of Otto Schell and Andreas Oczko are unequivocal in their assessment of the indirect access topic.

It almost feels like SAP is going to war with its customers.

That’s a devastating indictment and one Howlett had to triple check. In their press release, DSAG is somewhat more measured:

While DSAG welcomes the fact that SAP is addressing the issue, it considers the statement to be in-sufficient…Nonetheless, the DSAG points out that SAP’s own document on pricing models for indirect access hasn’t been fully developed at this point – essential issues remain unresolved and many other aspects ignored, and the DSAG itself had advised against releasing any announcement at present. In particular, the SAP document mostly covers instances that are already well known, yet some of the legal aspects get left out. This only increases uncertainty among SAP customers and serves to hinder essential investments in future software.

In conversation, there is little doubt that DSAG sees indirect access as of sufficient importance that it will go to bat for German speaking users as hard as it can. To put this into perspective, when DSAG looks like it is winning concessions on a topic, the remaining SUGs usually fall into line, regardless of what they may say in public.

UKISUG made the following statement:

Paul Cooper, Chairman, UK and Ireland SAP User Group:

“We are pleased that SAP is finally taking action, as we have raised the issue of indirect licensing both directly and through SUGEN for a number of years. It has become a critical topic for many of our members and we are sure the new licensing model will be met with interest. Broadly speaking, moving from a named user to business metric based model for certain scenarios should make life simpler for most customers.

Overall it is a start and it’s good to see some clarity around three of the most popular processes SAP supports, but there is a long way to go. Through SUGEN we have already provided feedback on where improvements need to be made and highlighted the areas where there needs to be greater clarity. For example, there are very few users that only process orders. When it comes to deciding which license metric to be used (named user or order qty), customers need to ensure they understand what is best for them and their business, both now and in the future.

Licensing is an incredibly complex topic, so it will be imperative that SAP provides as much information and education to customers as possible, with working examples that customers can clearly understand.  SAP also needs to ensure that Account Managers are fully educated regarding this, so they can work with customers and articulate the right way to proceed.”

On video, Gianmaria Perancin, SUGEN chair said in response to Reed’s question about IoT adoption:

Many members are reluctant to look at SAP for IoT solutions while the license model still isn’t clear…it is important for SAP to be a partner and not a supplier for this to raise trust in the users…and then you can embrace the new technologies in a quicker and more enthusiastic way.

ASUG for its part is more conciliatory in tone. Geoff Scott, CEO ASUG believes that an atmosphere where SAP is publicly painted as the bad guy and puts SAP in a defensive posture makes it very difficult to hold a rational conversation with the company. Instead, it prefers to deal with the problem behind closed doors. Scott also says that he believes the vast majority of SAP customers are in compliance.

Most CXOs don’t want to have a conversation with their CFOs about a big liability that no-one saw coming. But times have changed and the digitization roadmap and the digitization journey we are on is changing things and as CIOs and CXOs we need to be careful about that so if you’re appropriately licensed today then you should be appropriately licensed tomorrow and we have agreed with SAP that we’re not making definitional changes….Licensing has never been simple and it’s never been transparent…there’s a lot of complexity to unwind here.

Jon said on video – and we reiterate – that we’d like to see ASUG involved in more public conversations on this topic. SAP struggles with this type of transparency but like all vendors, must ultimately embrace it. One question we’ll be talking with Geoff Scott further is: what about customers who aren’t sure they are in compliance? This question that came up in our meeting with McDermott also.

Some customers will be afraid to come forward even if SAP’s newer policies seem reasonable. Scott believes such customers should be in consultation with user groups if they are uncertain. That is certainly one answer, but perhaps not enough. SAP needs to create a safer harbor for such inquiries. An amnesty policy could be one way to address this. Update: ASUG posted their view on SAP licensing on the last day of the conference.

Unfortunately, no-one has said nor does anyone truly know the extent to which customers are fully compliant. We repeat what one small SI said. When surveyed, 80% of its 300+ customer base expressed some level of concern. We can also add that when talking about Diageo, SAP reckons there are at least another 50 similar cases. So – whether the real number of customers with an issue is a few hundred or any other number you choose, there is enough of a problem for it to be a major talking point. It’s not just volume, it’s quantum.

Our take

Reed continues to make the point about the impact that IoT devices connecting to SAP systems will have on the licensing topic. The fact that multiple sources are saying that despite SAP having good product in the market, there is an unwillingness or hesitancy to work with SAP tells us indirect access is far from over as a topic of discussion. It also means SAP’s potential to attract a good piece of the market is at risk of going over to competitors.

SUGEN made two vital points: smaller SAP customers who lack the leverage of bigger SAP customers are the ones most uncertain, and mostly likely to quietly look at other options rather than Leonardo. And: for these changes to work, they must drive down to a different attitude at the account executive/manager level inside SAP – no easy feat.

We cannot comment on the extent to which SAP feels aggrieved but as Den pointed out to McDermott – if you want to lay claim as the biggest independent software maker to the enterprise, then you’ve got to accept there is a big fat target on your back. To that extent, SAP has to be far more open, transparent and well meaning in its actions for it to win the trust implied by McDermott’s claim to empathy. SAP’s leadership knows that but the extent to which it may have to give up short term margin in order to win the bigger prize remains unclear. SAP doesn’t have a good history of moderating its brand of champagne but on this topic it may have no choice.

Image credit - public images

Disclosure - SAP is a premier partner at time of writing and covered most of the authors' travel and expense for attending SAPPHIRENow 2017.

    Comments are closed.

    1. Jarret Pazahanick says:

      Great article, very balanced and full of information and my personal take (with a caveat that I have a call with SAP leadership this week on topic) is that there is still a LONG ways to go, the announcement was very light on details, there is no indication that outside of SAP leadership this has been fully communicated and embraced throughout the organization and customers need to be careful on their next steps while monitoring things very closely.

      Some of the user groups are fighting harder on their customers behalf than others as the “behind the scenes” will not work as well on a public and very important topic like this. My take, is that SAP will fix this issue if they start loosing business so customers can definitely flex their muscles with their checkbook.

      Customers ultimately decide by their checkbooks (yes I know checks are not used much anymore) 🙂 which vendor they trust and want to deal with. Suing customers is not customer empathy or “world-class, customer-focused business” and keep in mind even with the announcements this week SAP is still continuing with Diageo and InBev lawsuits.

      Licensing is not a simple area and most will agree that SAP has always been very complex. Existing SAP customers should monitor this closely and if this does not get fixed, end to end, in a clear and easy to understand way over the next 3 months then understand you will be ultimately be signing up for a lot of risk with any new technology purchases + the exiting risk you may already have (unless you have a team of contract lawyers or an all you can eat license with SAP).

    2. Jon Reed says:

      Thanks Jarret – you’ve been on this issue for a long time and it’s now more important than ever. SAP isn’t the only vendor struggling with this issue but it has particular import for SAP given the legal proceedings against customers (which I strongly advise against, easy for me to say but…), the emphasis on trust/empathy, and of course the challenge of getting customers to buy into the future Leonardo (IoT and more) roadmap, most of which relies heavily on some type of data business model.

      As Den alluded to on Twitter, our conversations with McDermott and team were definitely constructive, with a number of good ideas discussed and an awareness that this topic has not been solved by the announcements made – which were a step, with many more to be taken.

      I said to Geoff Scott and to SUGEN that now is their time. Even more than Enterprise Support, this is the time for SAP user groups to “go bold” and make sure the future roadmap is friendly to their plans and worth of investment. The hard part for SAP will be driving this change down into the organization to the account exec/mgr level, but we did have some talks with SAP on that and now we’ll see about the follow through.

      – Jon

    3. Is the “all you can eat’ license so prohibitively expensive than other licenses?

      Why can’t SAP – “biggest independent software maker to the enterprise” – build “as used license” monitoring into on-premises ECC so that customers never fall out of compliance even if usage increases / decreases. License could auto charge customers as AWS Elastic does for cloud services.

      I don’t understand why this is all so hard for a top software company to provision.

    4. Jarret Pazahanick says:

      Dennis – On a side you mentioned above that “McDermott has said publicly that there will be no attempt by SAP to go after back maintenance and licensing in cases where customers are found to be out of compliance”

      but in the press release it states

      “SAP assures customers who proactively engage with SAP to resolve such under-licensing of SAP software that we will not collect back maintenance payments for such under-licensing.”

      with the key word being proactively so if a customer doesn’t engage with SAP that there could be back maintenance which is a bit scary right now with specific detail so sparse and a chance that the customers sales rep might not even be briefed/aware of all of this.

    5. Jonathan Fulcher says:

      This may not be a new topic, nor exclusive to SAP. But what is both new and seemingly exclusive to SAP is the use of indirect licensing to try to gain competitive advantage in deals involving solutions around the periphery of core ERP… CRM, P2P, etc.

      It is now commonplace for the SAP AE to inform the customer that indirect licenses will be required if they choose a competitive solution, but not if they choose SAP CRM, Ariba or Concur, for example. Surely this is clearly anti-competitive and therefore illegal in many jurisdictions?

      The ethics of this practice are further muddied when the SAP AE is unable/unwilling to clarify for their customer what such indirect licenses may cost or what types of integration to 3rd party products would incur such licensing.

      As one prospect put it to me recently “it’s tantamount to them turning up with a baseball bat at the end of a losing sales cycle”.

      If SAP leadership wish to be transparent and communicative on this issue then they need to define the issue more clearly so that their customers can self diagnose, and they need to clarify the price of an indirect user license (as the judge in the Diageo case already ruled that it is not a regular license). Until then it is all just noise and ambiguity which to many customers is what represents said baseball bat.

    6. DC says:

      Any further clarification on “Indirect static read”? If I download my sales transactional data to Excel for analysis, and share these data with my colleague .. I presume that is “Indirect Static Read”?

      1. Jon Reed says:

        I expect SAP to issue more detail on these policies including a deeper definition of indirect read. But yes, the scenario you’re describing definitely seems to fall within the indirect static read as I would define it. This is not formal contract advise though, just a blog reply 🙂

        – Jon

    7. Two things that I picked up on on this is which will be interested to see how they will work. .

      1) Will there be fixed price pr IE invoice or will it depend on the type of company. I guess if you are an aircraft manufactor your invoice values are different than if you are dealing with B2C.

      2) Is this a way for SAP to ensure they will continue to get something when they are able to reduce the amout of people in the enterprise with ML and other smart technologies.